Monday, March 24, 2008

Civil servants are likely to get a pay hike of about 30 per cent with the Sixth Pay Commission due to submit its recommendations to finance minister P. Chidambaram on Monday.

But while granting the pay rise, the commission is expected to advise the government to hack the layers of bureaucracy — an objective that has been articulated in the past by various governments but without any great conviction.

Sources in the finance ministry said the pay increase would put a further strain on the government’s finances, especially after it announced a Rs 60,000-crore loan waiver for farmers in Budget 2007-08.

Chidambaram has made no provisions in the budget for the increased wage bill.

Top finance ministry officials said the Centre’s wage bill would go up by Rs 21,000 crore, or 0.4 per cent of the GDP.

D. Joshi, chief economist of Crisil, said, “We estimate that the fiscal deficit will shoot up from 2.5 per cent of GDP to 3 per cent because of the implementation of the pay commission’s recommendations.”

The bigger focus will be on whether the government will go ahead and trim the size of the bureaucracy, which now has 3.3 million civil servants.

“We need to reduce the levels of hierarchy, not just the flab. A golden handshake scheme will also help reduce the surplus which could be as high as 25 per cent. But this will call for political will,” said S.P. Mukherjee, former secretary to the government.

Pressure on states

The pay hike at the Centre will put pressure on cash-strapped states to make similar announcements. “States should think twice before following the lead — not all of them are in the pink of health,” said Joshi.

Last year, Bengal finance minister Asim Dasgupta admitted that his government had faced a fiscal crisis since 1999, largely on account of implementing the Fifth Pay Commission’s recommendations.

Coincidentally, Chidambaram will be doling out the largesse to the civil servants for a second time in just over a decade. Eleven years ago, he was the finance minister in the United Front government. At that time, the government’s wage bill shot up by nearly Rs 18,500 crore, sparking a strong demand for goods.

“The payout in 1997-98 imposed a huge burden on the successor government, not to speak of the states which sank into losses,” said S.P. Gupta, former member of the plan panel.

If anything, the bureaucracy has become top heavy: there were less than a score of secretaries to the government in the early 1980s. Today, it has swelled to almost four score.